College expenses can be set aside

In contrast to the tuition plan, any college is allowed.

Florida's Prepaid College Plan needs no introduction. After three decades, Floridians are well acquainted with the opportunity to lock in tuition rates at the state's public colleges and universities.

What many don't know is that the prepaid plan has a younger sibling with even bigger potential. The Florida College Investment Plan offers a way for families to save for apartments, pizzas, textbooks and other college expenses that can exceed tuition. And for families who think their children will attend private or out-of-state colleges, it's a slam dunk.

"We thought if we're going to wind up spending that money anyway, we may as well plan for the whole deal, " said Donald Bickel of Tampa. He and his wife, Monica, began saving for college when their baby, Erica, was born last October.

They set up a prepaid plan to cover tuition and an investment plan for other expenses. When Erica goes to college, withdrawals from the investment plan can be used to cover qualified expenses such as mandatory fees, books, supplies, and required equipment as well as room and board.

Should she end up at Bickel's alma mater, Georgia Tech University, the prepaid plan would cover the equivalent of Florida public university tuition and proceeds from the investment plan could be used to make up the difference in the tuition rate.

"At this point, because she's so young, we're thinking USF University of South Florida so she could live at home, " said Bickel, a partner in Mercury New Media, a business that builds Web sites. "But by the time she's 16 or 17, it might be she needs to go out of state. What we're trying to do is save appropriately and enough so that she can go wherever she wants to go and can get in."

Lots of families think like the Bickels. Nearly two-thirds of the 24, 399 participants in the investment plan also have an account with the prepaid plan. Many of the other participants likely are not eligible for the prepaid plan, which has age and residency restrictions. The investment plan is open to anyone, so adults can use it to save for their own future education expenses and grandparents for out-of-state grandchildren.

Unlike the prepaid plan, the investment plan offers no guarantees. The value of your account depends entirely on how much you save and the performance of the investments you have chosen.

"It's similar to having a 401(k) plan versus having a pension plan, " said Tampa financial planner Kimberly Overman.

The investment plan offers mutual-fund-like choices including a stock fund, a fixed-income fund, a balanced fund that combines stocks and bonds and a money-market fund. There also are a set of age-based choices that start out as all-stock investments for a newborn and become more conservative as the child gets closer to college age.

Investment managers for the $236-million plan are chosen through competitive bidding and currently include U.S. Trust Co., Deutsche Asset Management, Northern Trust Investments and Fiduciary Management. The Prepaid College Board watches their performance with advice from Watson Wyatt Investment Consulting.

The board replaced its value stock manager in May because of poor performance relative to a value stock index. However, other managers' results have been in line with their market indexes.

The investment plan charges an administrative fee of 0.75 percent per year, which includes the fees of money managers.

The Florida plan is just one choice among dozens for Floridians looking for a tax-sheltered college savings plan. Some are far larger - Virginia's has $20-billion in assets - because they've been sold nationally by financial advisers.

Financial planner Overman said she recommends the Web site www.savingforcollege.com to those who want to research other states' plans. "If you want to use a program through a broker dealer, it's important to ask about the fees and commissions associated with it, " she said.

The plans, known as 529 plans, all offer the same federal income tax advantages. However, some states offer state income tax deductions and financial aid preferences to participants in an in-state plan.

If money in a college savings plan is withdrawn for expenses that don't qualify under the tax law, income tax is due plus a 10 percent penalty.